2026-05-23 22:02:57
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📊 Monthly reports: 200+ companies visualized.
📩 Tuesday articles: Exclusive deep dives and insights.
📚 Access to our archive: Hundreds of business breakdowns.
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Today at a glance:
🛒 Walmart: Fuel Pressures the Flywheel
⚙️ Analog Devices: Cyclical Becomes Secular
✅ Intuit: Tax Season Stumble
🎮 NetEase: Live-Service Games Deliver
🎯 Target: Turnaround Finds Traction
🎮 Take-Two: GTA VI Date Locked
👔 Workday: Flex Credits Take Root
🖥️ Zoom: AI Companion Nearly Triples
⛷️ Amer Sports: Salomon Growth Inflection
⚡️ NIO: Margin Expansion Continues
Walmart reported its Q1 FY27 (April quarter), and revenue grew 7% Y/Y to $177.8 billion ($2.9 billion beat). Adjusted EPS was $0.66, in line with expectations. The operating margin contracted slightly due to higher fuel costs.
Walmart US comps rose 4.1%, slightly ahead of consensus, driven by a 3% increase in transactions and a 1.1% higher average ticket. Sam’s Club comps rose 3.9%, also ahead of expectations.
International sales jumped 18% to $35.1 billion, reflecting broad-based strength across key markets such as Walmex, China, and Flipkart in India, as well as continued e-commerce momentum. The segment is increasingly adopting the Walmart US playbook: more marketplace volume, more digital engagement, and more high-margin services layered on top of retail.
The steady shift toward digital continued:
Profit diversification: High-margin streams keep scaling. Global advertising grew 37%, Walmart US advertising grew 36%, while global membership fee revenue rose 17%. The broader “membership and other income” line grew faster, but it includes miscellaneous items beyond subscriptions. Commerce solutions, including ads, membership, and marketplace, now represent roughly one-third of operating income.
AI integration: Sparky, Walmart’s AI shopping assistant, saw weekly active users more than double sequentially. Customers using the tool have an average order value about 35% higher than non-users.
E-commerce momentum: Global e-commerce sales grew 26%, now representing nearly a quarter of total revenue. In the US, delivery grew 45%, marketplace sales rose nearly 50%, and Walmart can now reach 60% of the US population within 30 minutes.
The main pressure point was fuel. Walmart absorbed roughly $175 million in higher fuel costs during the quarter to keep prices competitive. Management noted that lower-income consumers are becoming more budget-conscious, with gas station customers buying less than 10 gallons per visit for the first time since 2022. If fuel prices stay elevated, Walmart may eventually need to raise prices.
Despite the sales beat, shares fell after guidance came in light:
Q2 adjusted EPS: ~$0.73 vs. $0.75 consensus.
FY27 adjusted EPS: ~$2.80 vs. $2.92 consensus.
Management still expects sales to trend toward the high end of its 3.5% to 4.5% annual growth range, with operating income growth improving through the year.
Walmart remains a share-gainer in a pressured consumer environment. Its value proposition is attracting shoppers, while e-commerce, ads, membership, and marketplace are improving the profit mix. But higher fuel costs are testing how much margin the company can protect while keeping prices low.
2026-05-22 20:03:00
Welcome to the Free edition of How They Make Money.
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🚀 SpaceX just published its S-1 filing, so we’ll spend the next few days digging into what could become the biggest IPO ever. Stay tuned for our full breakdown next week with the signature visuals you know and love.
That was Jensen Huang’s closing message after NVIDIA’s Q1 FY27 earnings call.
His explanation was simple: agentic AI has moved from promise to production, turning token generation into a revenue stream.
That’s the clearest expression yet of NVIDIA’s token economy thesis. Compute is no longer just infrastructure spending. It is becoming the raw material for AI revenue.
Let’s break down the quarter.
Today at a glance:
NVIDIA’s Q1 FY27
Business highlights
Key quotes from the call
What to watch moving forward
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NVIDIA’s fiscal year ends in January, so the April quarter was Q1 FY27.
Data Center revenue remains off the charts, as illustrated below.
Revenue accelerated +85% Y/Y to $81.6 billion ($2.6 billion beat).
Data Center +92% Y/Y to $75.2 billion.
Edge Computing +29% Y/Y to $6.4 billion.
Gross margin was 75% (+14pp Y/Y).
Operating margin was 66% (+16pp Y/Y).
Non-GAAP EPS $1.87 ($0.10 beat).
Operating cash flow +84% Y/Y to $50.3 billion.
Free cash flow +86% Y/Y to $48.6 billion.
Cash and cash equivalents: $80.5 billion.
Debt: $8.5 billion.
Revenue +11% Q/Q and +95% Y/Y to $91.0 billion ($3.0 billion beat).
Gross margin 75% (flat Q/Q).
⚙️ Data Center is still the whole story: Data Center revenue surged 92% Y/Y to $75.2 billion and now represents 92% of the business. NVIDIA also changed its breakdown (previously Compute vs. Networking), shifting the focus from what it sells to who is building AI factories:
Hyperscale surged 115% Y/Y to $37.9 billion, driven by customers like AWS, Azure, and Google Cloud.
AI Clouds, Industrial, and Enterprise was nearly as large, rising 74% Y/Y to $37.4 billion. This segmentation helps counter the notion that NVIDIA relies solely on a handful of Big Tech buyers. Demand is broadening across neoclouds, sovereign AI, industrial deployments, and enterprise customers.
🧠 Inference is becoming the engine: NVIDIA’s growth is no longer just about training bigger models. As AI apps move from chatbots to agents, every query, image, video, and coding task requires real-time compute. That is why Jensen keeps framing AI infrastructure around tokens, not chips.
📈 Margins remain the lie detector: Gross margin stayed at 75% despite the complexity of the Blackwell ramp, higher memory content, and the shift toward full rack-scale systems. If competition were biting or demand were softening, margins would likely show it first.
💰 Cash flow is becoming absurd: Free cash flow nearly doubled to $48.6 billion in a single quarter. NVIDIA is not just growing revenue. It is converting that growth into cash at a scale that provides strategic flexibility for supply-chain investments, partnerships, and ecosystem support.
💼 Investment gains flattered reported profits: Net profit of $58.3 billion included nearly $16 billion in equity investment gains. NVIDIA did not break them out by company, but the large publicly disclosed holdings include Intel, CoreWeave, and Coherent, with Intel likely the biggest contributor in Q1.
🔮 The $91 billion guide raises the bar again: Guidance implies an 11% sequential increase and 95% Y/Y growth. The bigger NVIDIA gets, the harder it should be to keep compounding at this pace. Yet guidance still implies faster Y/Y growth.
Big picture: NVIDIA’s Q1 FY27 results support the same message Jensen delivered at GTC. The AI boom is moving from training clusters to full AI factories built for inference, agents, and token generation. The numbers suggest the cycle is still expanding, not digesting.
China is no longer a clean zero, but it is not back either.
The US has reportedly cleared H200 sales to roughly 10 Chinese companies, including Alibaba, Tencent, ByteDance, and JD.com. But the chips have not shipped yet because Beijing has not given the green light, partly because it wants local companies to rely more on domestic alternatives.
NVIDIA is still assuming no China Data Center compute revenue in its outlook. That creates an unusual setup. The business is accelerating without China, while any actual restart would become incremental upside.
The key point is that NVIDIA is winning without China. If China reopens even partially, it becomes a call option on top of an already booming business.
The most surprising development from the call may have been NVIDIA’s CPU ambitions.
Management said Vera opens a $200 billion TAM and that NVIDIA has visibility to nearly $20 billion in standalone CPU revenue this year. That would push NVIDIA into a market it has never meaningfully addressed before.
Vera is more than a companion chip for Rubin. It could become a new growth pillar across AI factories, storage, security, and confidential computing.
NVIDIA announced a strategic partnership with IREN to support the deployment of up to 5 gigawatts of NVIDIA DSX-aligned AI infrastructure across IREN’s data center pipeline. NVIDIA also received a five-year right to buy up to 30 million IREN shares at $70. Since the stock trades below that level, this is less a near-term investment than an upside kicker if IREN becomes a major partner.
This is the AI factory thesis in action. The bottleneck is no longer just access to GPUs. It is power, land, cooling, networking, deployment speed, and operating know-how.
The deeper NVIDIA moves into the factory layer, the more its moat depends on the entire deployment stack rather than any single chip.
Check out the earnings call transcript on Fiscal.ai here.
“AI can now do productive and valuable work. Tokens are now profitable. Model makers are in a race to produce more. In the AI era, compute capacity is revenue and profits.”
Jensen says the AI boom has shifted from experimentation to monetization. If tokens can be produced profitably, compute becomes the constraint on revenue growth. Bears see hyperscaler spending as a cost. Jensen sees compute as the input required to generate AI revenue.
“The world has billions of human users. My sense is that the world is going to have billions of agents. [...] Every one of those agents are going to spin off sub-agents, and every time they spin these off, you're going to need to do inference. That's where the thinking happens. All of the thinking happens on GPUs. All of the orchestration essentially runs on CPUs.”
This is the simple mental model for Vera: GPUs do the thinking, while CPUs coordinate the work. As agents use tools, browse the web, call compilers, manage memory, and spin up sub-agents, NVIDIA sees a growing need for CPUs built specifically for agentic AI.
NVDA is up nearly 20% YTD, still outperforming the S&P 500 by a wide margin. The index is less than 8%. The latest 13F filings for Q1 2026 showed that some funds were still buying, such as Altimeter and Tiger Global. The stock remains one of the most widely held names, although many funds are still underexposed relative to its 8% weight in the S&P 500.
At ~27x forward earnings, NVIDIA continues to trade mostly in line with the rest of Big Tech. With adjusted EPS surging 140% Y/Y, you could certainly argue it looks cheap. NVIDIA’s growth is supply-constrained. That means quarter-to-quarter noise matters less than understanding how long this cycle can run and what the business looks like when demand normalizes.
Here’s what I’m watching:
ACIE growth: NVIDIA’s new disclosure shows that AI Clouds, Industrial, and Enterprise are nearly as large as Hyperscale, and growing faster sequentially. If this continues, it would support the idea that the AI buildout is broadening beyond hyperscaler CapEx.
Rubin cadence: Vera Rubin production shipments are expected to begin in Q3 and ramp into Q4. A clean handoff from Blackwell to Rubin would support NVIDIA’s $1 trillion Blackwell and Rubin revenue outlook through 2027. A delay could create the demand air pocket that bears have been waiting for.
Token economics: Jensen says tokens are now profitable, but the real test is whether AI labs and AI-native companies can turn token revenue into durable profits after compute, R&D, and customer acquisition. NVIDIA is proving the infrastructure demand. Some customers still need to prove the business model.
📉 The bear case is that AI infrastructure demand eventually normalizes.
📈 The bull case is that agentic AI turns compute into a new industrial base.
NVIDIA is building for the latter.
That’s it for today!
Happy investing!
Thanks to Fiscal.ai for being our official data partner. Create your own charts and pull key metrics from 50,000+ companies directly on Fiscal.ai. Save 15% with this link.
Disclosure: I own AAPL, AMD, AMZN, GOOG, META, MSFT, and NVDA in App Economy Portfolio. I share my ratings (BUY, SELL, or HOLD) with App Economy Portfolio members.
Author's Note (Bertrand here 👋🏼): The views and opinions expressed in this newsletter are solely my own and should not be considered financial advice or any other organization's views.
2026-05-19 20:01:13
Welcome to the Premium edition of How They Make Money.
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Every quarter, funds managing over $100 million must disclose their portfolios, offering a rare glimpse into the minds of elite investors.
The latest 13F filings capture trades from January 1 to March 31.
In Q1, the AI trade moved down the stack.
Big Tech kept raising the stakes with massive AI infrastructure commitments, but investors started questioning the payoff timeline. That tension reshaped the market: semis, power, and physical infrastructure became cleaner expressions of the buildout.
Software told a different story. The category faced one of its sharpest sentiment resets in years as investors questioned how AI agents could pressure traditional SaaS models.
At the same time, hopes for rate cuts faded and oil prices jumped, prompting funds to rethink crowded positions.
Against that backdrop, super investors had to make some calls: chase the AI buildout, buy the software reset, rotate into durable compounders, or trim crowded winners.
Let’s see where the smart money leaned.
Today at a glance:
Hedge funds’ strategies
Top buys and top holdings in Q1
Fund picks that were not on your bingo card
Implications for individual investors
Before we dive into 13Fs, a quick reminder: blindly copying hedge fund trades is a terrible strategy.
Investing is like shooting 3-pointers. Even Steph Curry, the greatest shooter ever, misses more than half the time. There are no guaranteed outcomes, even for the pros.
Your behavior matters more than your portfolio. As Peter Lynch said, “Know what you own and why you own it.”
Conviction is what helps you hold through volatility. And conviction comes from doing your own work, not borrowing someone else’s.
As Ian Cassel puts it:
“You can borrow someone else’s stock ideas but you can’t borrow their conviction. […] Do the work so you know when to sell. Do the work so you can hold. Do the work so you can stand alone.”
Some limitations of 13F filings:
Omit short positions and cash reserves.
Offer a partial view, leaving out smaller funds.
Exclude non-US equities, bonds, and commodities.
Can be dated, given their submission 45 days after the quarter.
With all this said, let’s see what top funds were buying and holding in Q1.
Hedge funds are financial powerhouses known for flexible, aggressive strategies designed to beat the market.
Here’s what typically shapes their moves:
Market conditions: Long in bull markets, defensive in bear markets.
Sector trends: Shifts in regulation or consumer behavior steer capital.
Fundamentals: Strong earnings, free cash flow, and leadership matter.
Macro factors: Rates, inflation, and geopolitics influence positioning.
Quant models: Some lean on proprietary algorithms to find an edge.
Risk management: Diversification, hedging, and position sizing.
Investor sentiment: Fear and greed create mispriced opportunities.
Still, it doesn’t always work out.
The Global X Guru ETF (GURU), designed to track top hedge fund holdings, has underperformed the S&P 500 since its inception in 2012. And that comparison still leaves out the classic hedge fund fee drag.
And those fees matter. The classic “2 and 20” model (2% of assets + 20% of gains) can significantly reduce returns. It's no wonder that many individual investors are opting for simpler, lower-cost strategies.
Our partners at Fiscal.ai gather the data on Super Investors and visualize their portfolio for you. Pick your favorite investors and see how their holdings have evolved.
In early 2020, just before the COVID market turmoil, I curated a list of 20 top-performing hedge funds using TipRanks data. The selection focused on alpha relative to the S&P 500, and I also included a few funds frequently featured in my social feeds and podcast rotation. It’s not perfect, but it remains a solid directional filter.
The 12 stocks below represent over half of the top holdings listed:
🤖 AI infrastructure: TSM, NVDA, AVGO, ASML, MU, GEV.
☁️ Hyperscalers: AMZN, MSFT, GOOG, META.
📦 Global commerce: MELI, V.
Amazon remains the most widely held stock, making the top 5 holdings of half of these funds, followed closely by Taiwan Semiconductor and Alphabet.
Also, note that Apple is entirely absent despite being the third-largest company by market cap globally. You also won’t find Tesla here, despite its popularity with individual investors.
This list of holdings doesn’t change much from one quarter to the next, so let’s turn to the more actionable insights with the new movements in Q1.
2026-05-16 22:03:10
Welcome to the Saturday PRO edition of How They Make Money.
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📊 Monthly reports: 200+ companies visualized.
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Today at a glance:
🛢️ Aramco: Pipeline Holds the Line
📱 Tencent: AI Catch-Up Cost
🌐 Cisco: AI Orders Nearly Double
⚙️ Applied Materials: AI Tailwind Accelerates
🏦 Nubank: Credit Costs Bite
🚚 JD.com: Food Delivery Losses Narrow
🪙 Circle: Arc Steals the Show
🧊 Dynatrace: ARR Crosses $2 Billion
👟 On: Premium Strategy Compounds
🎨 Figma: AI Monetization Lands
💊 Hims & Hers: GLP-1 Comedown
🛍️ Global-e: AI-First Margin Lift
💳 Klarna: Profit Pivot Lands
📆 Monday.com: AI Pricing Pivot
🌎 DLocal: Volume Outpaces Margin
With Brent hovering near $100, the Strait of Hormuz still effectively closed, and nearly a billion barrels of regional supply already lost to the blockade, Aramco's Q1 print landed in the middle of the most disruptive oil supply shock in decades.
Q1 adjusted net income jumped 26% Y/Y to $33.6 billion ($2.4 billion ahead of consensus) on revenue of $115.5 billion (+7% Y/Y). Aramco's realized crude price climbed to $76.90/bbl from $64.10 in Q4, with Brent rising 95% over the quarter. The $21.9 billion quarterly dividend held — but free cash flow of $18.6 billion came in below the payout for the first time in years, dragged by a $15.8 billion working-capital build tied to crisis-driven inventory and logistics shifts.
The story remains the East-West pipeline, which hit its full 7 million bpd capacity in Q1. CEO Amin Nasser called it a “critical supply artery.” Crude sales volume rose Y/Y but fell sequentially, reflecting the loss of Strait of Hormuz throughput. CapEx of $12.1 billion supports the ongoing $50-55 billion FY26 spending plan. Gearing rose to 4.8% from 3.8% at year-end as the dividend exceeded free cash flow.
Nasser gave a stark warning. If Strait of Hormuz traffic resumes today, oil markets will need a few months to rebalance — but if the disruption persists beyond a few more weeks, the market won’t normalize until 2027. The question for the coming months is whether Hormuz traffic recovers enough to ease working-capital pressure, and whether Aramco can keep crude flowing at pipeline capacity without compromising the dividend if free cash flow continues to run below the $21.9 billion payout.
Tencent Q1 revenue rose 9% Y/Y to 196.5 billion yuan (~$29 billion) — its slowest pace in six quarters and a miss versus the 199 billion yuan consensus. Net profit climbed 21% to 59.4 billion yuan, beating expectations. The revenue miss was partly due to a later Lunar New Year, shifting some gaming revenue to Q2. Shares are down over 20% YTD as investors weigh whether Tencent can monetize AI fast enough.
Gaming grew 8%. Domestic gaming grew just 6% on the holiday shift, while International gaming rose 13%, boosted by League of Legends, Wuthering Waves, and Brawl Stars.
Marketing services surged 20% (accelerating from 17% last quarter), the clear bright spot, driven by an upgraded AI-driven ad recommendation model.
FinTech and Business Services rose 9%. Tencent Cloud’s international business (part of this segment) grew over 40%.
Social Networks declined by 2%, primarily due to the later timing of the Spring Festival. Wexin and WeChat now have a combined 1.43 billion Monthly Active Users (MAUs).
Capex jumped 63% sequentially to 31.9 billion yuan (~$4.4 billion), with management pledging “a substantial increase” in H2 as China-designed AI chips become available. CEO Pony Ma candidly explained: “A year ago we thought we were on the boat, then we found it was leaking” — a rare acknowledgment that Tencent is playing catch-up.
The Hy3 preview model launched in April climbed to the top of OpenRouter’s token-usage leaderboard, with WorkBuddy now positioned as China’s most widely used productivity AI agent. Tencent confirmed it’s working to integrate agents into WeChat’s mini-program ecosystem, but gave no timeline. Tencent’s 36 billion yuan ($5 billion) AI spend in 2026 remains conservative versus the $700+ billion combined US hyperscaler budget. The next question is whether agentic AI integration into WeChat starts generating measurable engagement before competitors like ByteDance and Alibaba lock in distribution.
2026-05-15 20:03:02
Welcome to the Free edition of How They Make Money.
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This week, Alibaba and Sea Limited reminded investors what that looks like.
Both missed profit expectations. Both stocks rallied anyway.
That’s the paradox of an investment cycle. The income statement gets worse before the underlying business gets better. Alibaba is pouring money into AI infrastructure. Sea is spending to widen its e-commerce moat.
To be sure, the bar was very low. After all, these two stocks have been down in the past five years, while the S&P 500 has nearly doubled.
But investors may forgive ugly earnings today if the spending creates better earnings tomorrow. The question is whether these companies are building moats or just burning cash.
Today at a glance:
🐉 Alibaba: The AI Trade-Off
🌊 Sea Limited: Moat Over Margins
Alibaba just delivered one of the strangest earnings reactions of the season.
Revenue grew only 3% Y/Y to $35.3 billion ($1.1 billion miss), while adjusted EBITA fell 84% to $0.7 billion. The company turned to an operating loss for the first time in five years.
And yet, the stock jumped 8%. Why? Because investors looked past the income statement and focused on the AI trajectory.
CEO Eddie Wu said Alibaba’s AI work has moved from “incubation to commercialization at scale.” The company now expects to spend even more than its previous $52 billion three-year AI investment plan, with management prioritizing growth and market share over near-term margins.
In short, Alibaba traded profit for AI growth.
Revenue breakdown:
🛒 China E-commerce: $17.7 billion, up 6%.
☁️ Cloud Intelligence: $6.0 billion, up 38%.
🌍 International commerce: $5.1 billion, up 6%.
🧩 All others: $9.6 billion, down 21%, distorted by disposals.
Excluding disposed businesses such as Sun Art and Intime, group revenue actually grew 11% Y/Y.
The main problem was profitability. Group operating margin turned slightly negative. Adjusted EBITA margin dropped to 2% from 14%. Sales and marketing expenses rose to 22% of revenue as Alibaba funded subsidies for quick commerce and user acquisition for the Qwen AI model family. Free cash flow swung to a $6.8 billion outflow as AI infrastructure spending ramped up.
Alibaba is no longer managing the business for clean quarterly margins. It is managing for a strategic position.
Management expects Cloud Intelligence’s external growth to keep accelerating beyond +40%. Annual recurring revenue from AI models and applications is expected to surpass 30 billion yuan (~$4.4 billion) by year-end. CapEx will rise from already elevated levels, as management warned of much higher-than-expected AI spending.
Cloud Intelligence was the bright spot thanks to AI.
Revenue grew 38% Y/Y to $6 billion, while external cloud revenue accelerated to 40% growth. AI-related product revenue grew triple digits for the 11th consecutive quarter and now accounts for 30% of external cloud revenue. Alibaba expects that mix to exceed 50% within about a year.
That matters because Cloud is the business that can change Alibaba’s multiple. The core marketplace is mature, quick commerce is expensive, and international commerce remains competitive. But if Cloud keeps accelerating with AI demand, Alibaba starts to look less like a slow-growth e-commerce giant and more like China’s AI infrastructure champion.
Wu’s key point is that AI tokens are becoming a production input, not just another line in the IT budget. If companies use AI to run workflows, serve customers, build software, and automate operations, demand scales with business activity.
That is the bull case for Alibaba Cloud.
China E-commerce reported revenue growth of 6% Y/Y, but the underlying marketplace looked healthier than the headline suggests.
Customer management revenue grew only 1% on paper, but that was distorted by an accounting change in how Alibaba records merchant subsidies. On a like-for-like basis, management says it grew 8%, though still increasingly supported by subsidies.
The pressure came from quick commerce. Taobao Instant Commerce is Alibaba’s push into food, grocery, and local delivery. It gives Alibaba another way to increase frequency and defend the customer relationship against Meituan, JD.com, PDD, and Douyin.
But it is expensive. China E-commerce adjusted EBITA fell sharply as Alibaba subsidized users and merchants. Management says the unit economics are improving and expects quick commerce to turn profitable on a per-order basis by FY27.
So the e-commerce story is a trade-off: Alibaba is using today’s profits to defend tomorrow’s traffic.
The most interesting long-term move is Qwen.
Alibaba is integrating Qwen into its broader ecosystem, including e-commerce experiences such as shopping assistance. That gives Alibaba something most AI companies would love to have: distribution.
A standalone chatbot has to acquire users from scratch. Alibaba can put Qwen in front of hundreds of millions of shoppers, merchants, and cloud customers.
That does not guarantee adoption. Consumer AI habits are still forming, and ByteDance, Tencent, Baidu, and other Chinese platforms are all fighting for the same user behavior.
But the strategic logic is clear: Alibaba wants AI to connect the full stack:
Models through Qwen.
Infrastructure through Alibaba Cloud.
Applications through shopping, merchant tools, and enterprise agents.
Distribution through Taobao and Tmall.
That is why investors were willing to look past the profit collapse. Alibaba is trying to prove it can be more than China’s e-commerce incumbent. It wants to be one of China’s core AI platforms.
Bottom Line: Alibaba traded a quarter of profit for a quarter of AI growth. The 84% EBITA decline was ugly, but the 40% external cloud growth was the signal investors cared about. Eddie Wu is telling the market that margins are secondary to building China’s AI stack. That can work if Cloud growth keeps accelerating and quick commerce losses narrow. But the spending has to translate into durable AI revenue, not just a bigger CapEx bill.
Sea Limited just delivered an impressive Q1, with the top line topping even the Q4 record, despite a quarter typically weaker seasonally.
Revenue grew +47% Y/Y to $7.1 billion, its fastest pace in years, while operating income rose just 30% to $0.6 billion. That gap tells the story: Sea is leaning back into investment mode.
CEO Forrest Li called 2026 a year to “deepen our competitive moats.” Translation: Sea is spending to widen its lead in e-commerce, fintech, and gaming.
The market liked it. The stock jumped as much as 12% after the print, helped by low expectations following a 50% slide from its September high. Investors had grown worried about margin pressure and rising competition across Southeast Asian e-commerce. This quarter showed the trade-off clearly. Growth is accelerating, but profits are being reinvested.
Revenue breakdown:
🛒 Shopee: $5.1 billion (+45% Y/Y).
💳 Monee: $1.2 billion (+58% Y/Y).
🎮 Garena: $697 million (+41% Y/Y).
Margins moved the other way:
Gross margin fell to 44%, down 2 points.
Operating margin fell to 8%, down 1 point.
Shopee adjusted EBITDA fell 16% despite record GMV.
Management reiterated Shopee GMV growth of ~25% Y/Y, with Shopee’s full-year adjusted EBITDA expected to at least match 2025 in absolute dollar terms.
Shopee remains Sea’s engine and burden.
GMV reached a record $37.3 billion, up 30% Y/Y, while gross orders rose 29% to 4.0 billion. Core marketplace revenue, including transaction fees and advertising, surged 61% to $3.8 billion.
That’s the good news: Shopee’s take rate is improving.
The bad news: cost of revenue rose 55% as Sea poured money into logistics and instant delivery. Shopee’s adjusted EBITDA fell to $223 million from $264 million a year ago.
This is the Amazon playbook we are all familiar with. Sacrifice near-term margin to build infrastructure that competitors struggle to match. TikTok Shop and Temu can compete on price. But a regional fulfillment network is harder to replicate.
Management still targets a long-term 2%-3% e-commerce EBITDA margin. For now, Sea appears willing to let margins compress if it means strengthening Shopee’s logistics moat.
Monee, formerly SeaMoney, is no longer a side hustle.
The loan book jumped 71% to $9.9 billion, the main driver of revenue growth for this segment. Non-performing loans past 90 days remained flat at 1.1%, a reassuring sign for now.
That matters because Monee has better unit economics than e-commerce, but also more downside if credit quality cracks. Sea is increasingly a marketplace, a gaming company, and a lender, all in one.
The opportunity is powerful. Shopee gives Sea transaction data that most banks never see. That can improve underwriting and deepen customer relationships. But the credit cycle has not been fully tested at this scale.
Garena delivered its best quarter since 2021. Bookings grew 20% Y/Y to $931 million, and adjusted EBITDA rose 25% to $574 million. Bookings represent the money spent by users during the quarter, which is recognized into revenue over time. It’s the representation of the business momentum.
The surprise is that Garena is not growing by adding many new users. Quarterly active users were roughly flat at 667 million. Instead, paying users grew 12%, and average bookings per user increased.
In plain English: the funnel is mature, but monetization is improving.
Free Fire remains the workhorse, supported by strong live events and partnerships. Garena was once written off as a fading one-hit business. Now it is back to doing what it did during Sea’s first growth wave: generating the cash that funds everything else.
Sea is becoming a three-engine compounder:
Shopee is building the logistics moat.
Monee is monetizing the user base through credit.
Garena is funding the reinvestment cycle.
The bull case is that these three engines reinforce each other. Shopee acquires the users, Monee deepens monetization, and Garena provides high-margin cash flow.
The bear case is just as clear: TikTok Shop, Lazada, and Temu are not going away. Credit risk and logistics costs could pressure margins for longer than investors expect.
Bottom Line: Sea is buying growth again, but this time from a stronger position. Q1 delivered record revenue, record GMV, record adjusted EBITDA, and a cleaner three-engine story than Sea has had since 2021. The next test is whether Shopee’s logistics spend turns into operating leverage and whether Monee’s fast-growing loan book holds up at scale. For now, Sea is choosing moat over margin. That can be a winning strategy, but only if the moat hardens before the bill gets too large.
📊 Stay tuned for our PRO coverage tomorrow, including Tencent, Cisco, Nubank, Figma, and more
That’s it for today!
Stay healthy and invest on!
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Disclosure: I own BABA, NU, SE, and TCEHY in App Economy Portfolio. I share my ratings (BUY, SELL, or HOLD) with App Economy Portfolio members.
Author's Note (Bertrand here 👋🏼): The views and opinions expressed in this newsletter are solely my own and should not be considered financial advice or any other organization's views.
2026-05-12 20:01:49
Welcome to the Premium edition of How They Make Money.
Over 300,000 subscribers turn to us for business and investment insights.
In case you missed it:
The market is punishing tech companies that can’t tell a grand AI story. Few examples are clearer than Sony and Nintendo, the world’s two top console makers, which reported earnings last Friday.
Sony’s stock is down 23% YTD. Nintendo is down ~50% over the past 12 months. Both are facing a memory crunch driven by AI demand for data centers. Both are raising console prices to defend margins.
Meanwhile, Alphabet, Amazon, Meta, and Microsoft can announce $100+ billion CapEx plans and watch investors come back after a brief selloff. Spending on AI infrastructure is treated as an expanding moat. Higher memory costs for consoles are just margin pressure with no upside.
That’s the strange setup for gaming in 2026.
Sony tried on the AI vocabulary this quarter, with physical AI and creator tools. Nintendo stayed quiet and focused on shipping games.
Both companies are executing well in their own ways.
But both are being valued like they’re missing the only story that matters.
Today at a glance:
🎮 Sony: Beyond PlayStation
🍄 Nintendo: The Price Test
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Sony just had its most profitable year ever. But the market focused on what comes next.
FY25 revenue (ending in March 2026) grew 4% Y/Y to ¥12.48 trillion (~$80 billion), while operating income rose 13% Y/Y to ¥1.45 trillion. Yet the March quarter was messy: net profit fell 63% Y/Y to ¥83 billion, far below consensus, dragged down by impairments at Bungie and Pixomondo plus a loss tied to the wound-down Honda EV venture.
The headline miss was ugly, but the underlying story is more interesting.
Sony is becoming a cleaner company: less hardware-heavy, more IP-driven, and more disciplined with capital. The new roadmap is built around gaming services, music catalogs, image sensors, and fab-light manufacturing.
The PS5 sold 1.5 million units in Q4, down from 2.8 million a year ago and the lowest quarter on record for the console. Lifetime shipments reached 93.7 million.
As a result, the revenue for the largest segment of the company was flat Y/Y. That sounds alarming, but the PlayStation business is healthier than the hardware numbers suggest.
Game & Network Services (G&NS) segment operating income fell 42% Y/Y to ¥54 billion in Q4, mainly because Sony booked an ¥88.6 billion Bungie impairment. The write-down reflects weaker future cash-flow expectations after softer engagement in Destiny 2 and delays around Marathon. Sony paid $3.6 billion for Bungie in 2022, making this a costly reminder that live-service games are harder to scale than they look. Strip out one-time charges, and full-year G&NS operating income would have grown 45% Y/Y instead of the reported 12%.
The gaming shift is clear:
Hardware is slowing.
Engagement is holding up.
Software and services are carrying more weight.
PSN monthly active users reached 125 million, up only 1% Y/Y, but still near record levels. Playtime grew along with the user base.
That is the key takeaway. Sony may sell fewer consoles late in the cycle, but the installed base remains deeply engaged. At this stage of the cycle, software it the profit center, while hardware is more of a distribution channel.
The FY26 guide confirms it: G&NS revenue is expected to decline 6% Y/Y, while operating income is expected to grow 30% Y/Y as the Bungie impairment rolls off. Hardware profitability is expected to be roughly flat. The growth comes from software, services, and lower costs.